GUANGZHOU, CHINA (June 13, 10:35 a.m. ET) — Protecting intellectual property in China remains, not surprisingly, an area of mixed success for foreign companies.
Some companies, such as U.S. blow molder Lifetime Products Inc. are winning court cases and feel they are making progress, and observers say enforcement and the legal system are getting stronger.
But many problems remain, including one area especially important to manufacturers like plastic molding companies — what happens with equipment after it's been used in infringing products.
Conrad Wong, a U.S. Patent and Trademark Office lawyer specializing in intellectual property issues who has been stationed in China since 2007, said it's an area where there has not been enough clarity.
“It's something I've been kind of harping on, but essentially the bottom-line answer I've heard is they don't destroy the machinery,” Wong said, speaking in a mid-May interview in U.S. government offices in Guangzhou, where he is based.
“You can seize all the counterfeit inventory, but if you're not going to break down the machines and completely destroy them, these guys are just going to start them up all over again,” he said.
“We're pretty happy with the fact, frankly, that they are paying attention to [intellectual property rights] trends, but what happens with the aftermath, that remains an issue that still needs to be resolved.”
Wong, who was in the first wave of U.S. government IP specialists to be stationed in China to assist U.S. firms, said that while the record “is still mixed,” things have changed for the better in his five years there.
“I do think the government is trying its best to try to get a handle on this,” he said.
“They want to attract more investment. … If investors don't have some modicum of comfort that their IPR are being protected and there are channels for relief, people are not going to want to invest.”
Also, he said China's desire to move up the manufacturing value chain is creating a natural constituency within the country for better IPR laws.
Wong noted that China wants to develop regional jetliners, like its C919, that are designed to compete with Boeing and Airbus aircraft.
But technology-intensive industries such as aerospace have increasingly complicated supply chains that require a lot of collaboration with suppliers worldwide, Wong said.
“They want to become a player in the midrange jet market. They want to try to invade the space that, frankly, the Boeing 737 has occupied for so long,” Wong said. “If they are going to get into advanced avionics, composite materials, all that stuff, that will require cooperation.
“That's the next step up in terms of IPR cooperation as well,” he added.
For example, Boeing's latest airliner, the 787 Dreamliner, with its heavy use of carbon-fiber-reinforced plastic structures, has 70 percent of its components made outside the U.S. — a switch in manufacturing models for Boeing.
A recent report from the U.S. Trade Representative's office, however, highlights continued problems in key areas.
USTR said in its April annual report on worldwide IPR trends, for example, that it found “worrisome” reports that local governments in Fujian and Guangdong provinces were protecting counterfeiting.
It said in one case, there was evidence that an entire supply chain in the toy industry, including design, manufacturing and packaging, was supporting massive counterfeit products and enjoyed some government protection.
“Local protectionism has impeded rights-holders who have investigated and provided clear evidence of counterfeiting operations … only to be stymied by provincial officials who have turned a blind eye to the evidence and failed to act,” the report said.
Giving a sense of the scale of potential economic losses in music sales, at least to international music companies like Warner Bros., the USTR report said revenue from selling legitimate physical and digital music in China in 2010 was only $64.3 million. For the U.S. market, the figure was $4.2 billion.
Thailand, which has roughly the same per capita income as China but only 5 percent of China's population, had $68.9 million in legitimate music sales, USTR said.
If Chinese per capita sales were equivalent to Thailand's, the American government report said, legitimate music sales in China would be about $1.4 billion a year.
The USTR report also said it is “important to recognize there were some improvements in China's IPR situation in 2011,” including high-profile campaigns initiated at top levels of the government that resulted in many more raids.
As well, the report noted that Chinese Internet giant Baidu Inc. reached agreements with three major international music-rights holders to have legal content on its music websites.